Question

Daniel Sawyer, the CEO of the Sawyer Group, is initiating planning for the company's operations next year, and he wants you to forecast the firm's additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.

Last year's sales = S0	$350	Last year's accounts payable	$40
Sales growth rate = g	30%	Last year's notes payable	$50
Last year's total assets = A0*	$700	Last year's accruals	$30
Last year's profit margin = PM	5%	Target payout ratio	60%

Select the correct answer.

a. $179.9

b. $175.1

c. $182.3

d. $187.1

e. $184.7

Answer 1

Answer : Correct option is (a.) 179.9

Required Additional funds = [ (Total Asset / Last year Sales) *Change in sales ] - [ (Spontaneous Liability / Last year Sales *Change in sales ] - [New Sales * Profit margin ratio * (1 - Dividend payout ratio)]

Change in Sales = 350 * 30% = 105

New sales = 350 + 105 = 455

Spontaneous Liability include Accounts payable and accruals

Required new funds = [ (700 / 350) * 105 ] - {[70 / 350 ] * 105 ] - [ 455 * 0.05 * (1 - 0.60)]

= 210 - 21 - 9.1

= $179.9